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Credit and Debit Card Smarts

Credit cards can be a convenient way to spend now without having to pay until later. It’s important, however, to not charge more than you can actually afford and to pay your bill in full each month. Most cards have interest rates that increase the total amount you end up paying if you don’t pay your bill on time. Even if you can’t pay in full each month, strive to pay more than the minimum payment to avoid additional fees and accumulating debt.

To see how much you’ll end up paying over time if you only pay the minimum each month, use these calculators:

It’s important to be smart with your credit card use because it impacts your credit score. Credit scores typically range from 300 to 850 and are used by lenders to assess the likelihood that you will repay your debt. The higher your score, the more creditworthy you are and can affect the types of loans you will be able to secure and the interest rate for those loans.

Credit scores are calculated by looking at several factors. Here are a few of the main factors:

Payment history: whether or not you pay your bills on time

Credit utilization ratio: how much credit is available to you versus how much you actually use

Search for new credit: number of credit card and loan applications you fill out

Length of credit relationships: how long you have had a credit card

You can boost your credit score by paying your bills on time, every time, and by not maxing out your credit cards to the limit. For example, if you have a $5,000 limit, try to keep your balance around 20 to 30 percent of that ($1,000 - $1,500). Also, try to limit the number of credit cards you apply for and maintain at least one card that is more than two years old.

To obtain a free copy of your credit report, visit http://www.annualcreditreport.com/. Read your report carefully, especially before applying for a loan, to make sure your credit score accurately reflects your finances. The Federal Reserve has a useful breakdown of how to read and understand your credit report and credit score, which you can read here.

While credit cards allow you to delay paying, debit cards withdraw money straight from your checking account when you use them. For your debit card to work, you must already have money in your account to cover the transaction. If you use your debit card to purchase something that costs more than the amount of money you have in your account, you will incur overdraft charges.

To avoid overdraft fees, it’s important to keep track of your current balance. Keep your receipts and record purchases in your checkbook as soon as possible. Also, take into account checks you may have written that haven’t cleared your account yet.